Memorandum of Law in Support of Motion to Dismiss — PayServices v. Frbsf (9th Cir.)

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U.S. District Court for the District of Idaho · No. 1:23-cv-00305-REP · Doc. 22-1 · 2023-08-14 · Docket on CourtListener

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DEFENDANT FEDERAL RESERVE BANK OF SAN FRANCISCO’S MEMORANDUM OF LAW IN SUPPORT OF 
ITS MOTION TO DISMISS PLAINTIFF’S COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF  
Robert A. Faucher (ISB #4745) 
rfaucher@hollandhart.com   
A. Dean Bennett (ISB #7735) 
adbennett@hollandhart.com  
Julie A. Hamilton (ISB #11708)  
jahamilton@hollandhart.com   
HOLLAND & HART LLP 
800 W. Main Street, Suite 1750 
Boise, ID 83702-7714 
Telephone:  (208) 342-5000 
Facsimile:   (208) 343-8869 
 
Jonathan K. Youngwood (Admitted Pro Hac Vice)  
jyoungwood@stblaw.com  
Meredith Karp (Admitted Pro Hac Vice)  
meredith.karp@stblaw.com  
SIMPSON THACHER & BARTLETT LLP 
425 Lexington Avenue 
New York, NY 10017 
Telephone:  (212) 455-2000 
Facsimile:   (212) 455-2502 
 
 
Attorneys for Defendant  
IN THE UNITED STATES DISTRICT COURT 
FOR THE DISTRICT OF IDAHO 
PAYSERVICES BANK, 
Plaintiff, 
vs. 
FEDERAL RESERVE BANK OF 
SAN FRANCISCO, 
Defendant.   
 Case No. 1:23-cv-00305-REP  
 
DEFENDANT FEDERAL RESERVE BANK 
OF SAN FRANCISCO’S MEMORANDUM 
OF LAW IN SUPPORT OF ITS MOTION 
TO DISMISS PLAINTIFF’S COMPLAINT 
FOR DECLARATORY AND INJUNCTIVE 
RELIEF 
 
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DEFENDANT FEDERAL RESERVE BANK OF SAN FRANCISCO’S MEMORANDUM OF LAW IN SUPPORT OF 
ITS MOTION TO DISMISS PLAINTIFF’S COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF - i 
TABLE OF CONTENTS 
Page 
PRELIMINARY STATEMENT .................................................................................................... 1 
BACKGROUND ............................................................................................................................ 3 
A. 
The Federal Reserve System ................................................................................... 3 
B. 
Master Accounts ..................................................................................................... 4 
C. 
The Board’s August 2022 Guidelines for Evaluating Account and 
Service Requests. .................................................................................................... 4 
D. 
PayServices’ Master Account Request ................................................................... 5 
LEGAL STANDARD ..................................................................................................................... 6 
ARGUMENT .................................................................................................................................. 6 
I. 
Each of PayServices’ Claims Must Be Dismissed Because FRBSF 
Had Discretion to Deny PayServices’ Request for a Master Account. ................... 6 
A. 
Count I (APA Claim) Fails Because Discretionary Action Is Not 
Reviewable. ................................................................................................. 7 
1. 
The FRA Provides FRBSF with Discretion to Deny 
Master Accounts. .............................................................................8 
2. 
Section 248a Does Not Entitle PayServices to a Master 
Account. ...........................................................................................9 
3. 
The Statutory Scheme Entrusts FRBSF with Discretion. ..............10 
4. 
The Board Confirms that FRBSF Has Discretion..........................12 
B. 
Count II (Mandamus Claim) Fails Because Mandamus Cannot Be Used 
to Compel Discretionary Action. .............................................................. 13 
II. 
Each of PayServices’ Claims Fails Because FRBSF Is Not the 
Federal Government. ............................................................................................. 15 
III. 
Count I (APA Claim) Must Also Be Dismissed Because FRBSF’s 
Decision Was Not Arbitrary or Capricious. .......................................................... 18 
IV. 
Count III (Due Process) Must Be Dismissed for the Independent 
Reason that PayServices Has Not Alleged that It Was Denied 
Procedural Protections. ......................................................................................... 20 
CONCLUSION ............................................................................................................................. 20 
 
 
 
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TABLE OF AUTHORITIES 
Page(s) 
Cases 
Accord N. Mgmt. Servs. v. Navigators Specialty Ins. Co., 
608 F. Supp. 3d 996 (D. Idaho 2022) ............................................................................................ 5 
Am. Bankers Ass’n v. United States, 
932 F.3d 1375 (Fed. Cir. 2019) ................................................................................................. 3, 4 
Am. Bankers Mortg. Corp. v. Fed. Home Loan Mortg. Corp.,  
75 F.3d 1401 (9th Cir. 1996) ....................................................................................................... 17 
Ashcroft v. Iqbal, 
556 U.S. 662 (2009) ....................................................................................................................... 6 
Barron v. Reich, 
13 F.3d 1370 (9th Cir. 1994) ....................................................................................................... 13 
Bell Atl. Corp. v. Twombly, 
550 U.S. 544 (2007) ....................................................................................................................... 6 
Biden v. Texas, 
142 S. Ct. 2528 (2022) ................................................................................................................... 8 
Bloomberg L.P. v. Bd. of Governors of the Fed. Res. Sys., 
649 F. Supp. 2d 262 (S.D.N.Y. 2009) ......................................................................................... 11 
Bobka v. Toyota Motor Credit Corp., 
968 F.3d 946 (9th Cir. 2020) ....................................................................................................... 10 
Burch v. Smathers, 
990 F. Supp. 2d 1063 (D. Idaho 2014) ........................................................................................ 15 
C.R. v. Eugene Sch. Dist., 
835 F.3d 1142 (9th Cir. 2016) ..................................................................................................... 20 
City of Sausalito v. O'Neill, 
386 F.3d 1186 (9th Cir. 2004) ..................................................................................................... 19 
Conn. Bd. of Pardons v. Dumschat, 
452 U.S. 458 (1981) ..................................................................................................................... 15 
Custodia v. Federal Reserve Bd. Of Govs., 
No. 1:22-cv-00125, Doc. 164 (D. Wy. June 8, 2023) .................................................................... 9 
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DEFENDANT FEDERAL RESERVE BANK OF SAN FRANCISCO’S MEMORANDUM OF LAW IN SUPPORT OF 
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Dong v. Smithsonian Inst., 
125 F.3d 877 (D.C. Cir. 1997) ............................................................................................... 15, 16 
Doyle v. City of Medford, 
606 F.3d 667 (9th Cir. 2010) ....................................................................................................... 14 
Emergency Fleet Corp. v. W. Union Tel. Co., 
275 U.S. 415 (1928) ................................................................................................................. 3, 17 
Farmers & Merchs. Bank v. Fed. Rsrv. Bank of Richmond, 
262 U.S. 649 (1923) ....................................................................................................................... 8 
Fed. Rsrv. Bank of Boston v. Comm’r of Corps. & Tax’n, 
499 F.2d 60 (1st Cir. 1974) .......................................................................................................... 11 
Fid. Fin. Corp. v. Fed. Home Loan Bank, 
792 F.2d 1432 (9th Cir. 1986) ..................................................................................................... 14 
Forest Grove School Dist. v. T.A.,  
557 U.S. 230 (2009) ....................................................................................................................... 9 
Fourth Corner Credit Union v. Fed. Rsrv. Bank of Kansas City, 
861 F.3d 1052 (10th Cir. 2017) ..................................................................................................... 9 
Hall v. Am. Nat’l Red Cross, 
86 F.3d 919 (9th Cir. 1996) ......................................................................................................... 17 
Int’l Bhd. of Teamsters v. United States DOT, 
861 F.3d 944 (9th Cir. 2017) ..................................................................................................... 7, 8 
Int’l Bhd. of Teamsters, Local 2785 v. Fed. Motor Carrier Safety Admin., 
986 F.3d 841 (9th Cir. 2021) ....................................................................................................... 12 
King v. Burwell, 
576 U.S. 473 (2015) ..................................................................................................................... 11 
Lebron v. Nat’l R.R. Passenger Corp.,  
513 U.S. 374 (1995) ..................................................................................................................... 17 
Lewis v. United States, 
680 F.2d 1239 (9th Cir. 1982) ................................................................................................. 3, 16 
McKinley v. Bd. of Governors of the Fed. Res. Sys., 
647 F.3d 331 (D.C. Cir. 2011) ....................................................................................................... 3 
Meritage Homes of Nev., Inc. v. FDIC, 
753 F.3d 819 (9th Cir. 2014) ......................................................................................................... 8 
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MH v. Jeppesen, 
No. 1:22-cv-00409-REP, 2023 U.S. Dist. LEXIS 108023 (D. Idaho June 20, 2023) ................. 14 
New York v. Atl. States Marine Fisheries Comm’n, 
609 F.3d 524 (2d Cir. 2010) ........................................................................................................ 15 
O’Keeffe’s, Inc. v. U.S. Consumer Prod. Safety Comm’n, 
92 F.3d 940 (9th Cir. 1996) ......................................................................................................... 18 
Ocean, Inc. v. Pritzker, 
24 F. Supp. 3d 49  (D.D.C. 2014) ................................................................................................ 12 
Opati v. Republic of Sudan, 
140 S. Ct. 1601 (2020) ................................................................................................................... 8 
Or. Nat. Res. Council v. Thomas, 
92 F.3d 792 (9th Cir. 1996) ........................................................................................................... 7 
Pinnacle Armor, Inc. v. United States, 
648 F.3d 708 (9th Cir. 2011) ................................................................................................. 14, 20 
Scott v. FRB of Kan. City, 
406 F.3d 532 (8th Cir. 2005) ................................................................................................. 16, 17 
Shoshone Bannock Tribes of the Fort Hall Rsrv. v. United States, 
575 F. Supp. 3d 1245 (D. Idaho 2021) ........................................................................................ 13 
Smith v. Grimm, 
534 F.2d 1346 (9th Cir. 1976) ..................................................................................................... 13 
Texas Dep’t of Hous. and Cmty. Affairs v. Inclusive Communities Project,  
135 S. Ct. 2507 (2015) ............................................................................................................... 8-9 
United States ex rel. Kraus v. Wells Fargo & Co., 
943 F.3d 588 (2d Cir. 2019) ........................................................................................................ 16 
United States v. Ritchie,  
 342 F.3d 903 (9th Cir. 2003) ........................................................................................................ 5 
United States v. Snoring Relief Labs., Inc., 
210 F.3d 1081 (9th Cir. 2000) ..................................................................................................... 18 
Walkwell Int'l Labs., Inc. v. Nordian Admin. Servs., LLC, 
No. 1:13-cv-0199-EJL, 2014 U.S. Dist. LEXIS 5282 (D. Idaho Jan. 13, 2014) ............. 15, 16, 18 
Whitman v. Am. Trucking Ass’ns, 
531 U.S. 457 (2001) ..................................................................................................................... 10 
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Witzke v. Idaho State Bar, 
No. 1:22-cv-00090-REP, 2022 U.S. Dist. LEXIS 217217 (D. Idaho Nov. 29, 2022) ............... 3, 6 
Statutes and Rules 
12 U.S.C § 341 ......................................................................................................................... 3, 4, 10 
12 U.S.C. § 221 .................................................................................................................................. 3 
12 U.S.C. § 241 ............................................................................................................................ 3, 10 
12 U.S.C. § 248(k) ........................................................................................................................... 16 
12 U.S.C. § 248a ....................................................................................................................... passim 
12 U.S.C. § 248c ........................................................................................................................ 11, 12 
12 U.S.C. § 252 ................................................................................................................................ 10 
12 U.S.C. § 302 ................................................................................................................................ 16 
12 U.S.C. § 304 .......................................................................................................................... 16, 17 
12 U.S.C. § 342 ......................................................................................................................... passim 
12 U.S.C. § 364 ................................................................................................................................ 10 
28 U.S.C. § 1361 .............................................................................................................................. 16 
5 U.S.C. § 701 .............................................................................................................................. 7, 15 
5 U.S.C. § 706(2)(a) ........................................................................................................................... 7 
Fed. R. Civ. P. 12(b)(6)...................................................................................................................... 6 
Regulatory Materials  
87 Fed. Reg. 51,099 ........................................................................................................... 4, 5, 12, 19 
Other Authorities 
Anti-Money Laundering, FINRA ...................................................................................................... 6 
Monetary Policy, Credit and Liquidity Programs and the Balance Sheet, 
FederalReserve.gov (Nov. 15, 2021) ............................................................................................. 4 
Reserve Maintenance Manual, FederalReserve.gov (Nov. 19, 2018) ............................................... 4 
 
 
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DEFENDANT FEDERAL RESERVE BANK OF SAN FRANCISCO’S MEMORANDUM OF LAW IN SUPPORT OF 
ITS MOTION TO DISMISS PLAINTIFF’S COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF - 1 
Defendant Federal Reserve Bank of Francisco (“FRBSF”) respectfully submits this 
memorandum of law in support of its Motion to Dismiss Plaintiff’s Complaint for Declaratory and 
Injunctive Relief. 
PRELIMINARY STATEMENT 
Plaintiff PayServices Bank (“PayServices”) is an online bank that operates no physical 
branches, does not carry FDIC insurance, and is not subject to prudential supervision by any federal 
banking agency.  Its business model focuses on providing payment processing to foreign merchants, 
buyers and governments.  This litigation concerns PayServices’ request for a “master account”—a 
depository account that provides institutions with direct access to the Federal Reserve System.   
FRBSF has discretion to grant institutions with direct access to the Federal Reserve System 
through a master account.  After nine months of careful review, FRBSF denied PayServices’ request 
because, consistent with guidelines established by the Board of Governors (the “Board”)—the 
federal agency in charge of overseeing the Federal Reserve System—FRBSF determined that 
PayServices’ business model and inadequate risk management controls opened up FRBSF and the 
Federal Reserve System, as a whole, to risk of illicit financial activity, including terrorism funding.   
Dissatisfied with FRBSF’s decision, PayServices now brings this action asking the Court to 
substitute its judgment for that of FRBSF.  PayServices asserts three claims—under (1) the 
Administrative Procedure Act (“APA”), (2) the Mandamus Act and (3) the Due Process clause—all 
of which seek the same relief: a court order requiring FRBSF to grant PayServices a master account.  
PayServices’ fundamental contention is that FRBSF had no discretion to evaluate PayServices’ 
master account request and instead should have rubber-stamped the request.  This reading is 
inconsistent with principles of statutory construction, and in direct contravention of the Board’s 
guidelines, which were published after two rounds of notice and comment.  FRBSF is not required 
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DEFENDANT FEDERAL RESERVE BANK OF SAN FRANCISCO’S MEMORANDUM OF LAW IN SUPPORT OF 
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to grant PayServices direct access to the Federal Reserve System and ignore the financial, 
reputational, and other risks posed by doing so.   
 PayServices’ Complaint should be dismissed with prejudice for the following reasons:   
First, all three claims must be dismissed because FRBSF has discretion to deny master 
accounts.  Section 342 of the Federal Reserve Act (“FRA”)—the only statutory provision that 
governs FRBSF’s administration of master accounts—provides FRBSF with discretion to deny 
master account requests.  See Section I.A.1.  Section 248a—the sole statutory provision on which 
PayServices relies—is a price discrimination provision which does not entitle PayServices to a 
master account and, in any event, does not apply to FRBSF.  See Section I.A.2.  Moreover, both the 
statutory scheme of the FRA taken as a whole and the Board’s interpretation of the FRA confirm 
that FRBSF has discretion (and in fact, an obligation) to deny master account requests from 
institutions that pose undue risk to the Federal Reserve System.  See Section I.A.3-4.  Because each 
of PayServices’ claims requires PayServices to establish that FRBSF had a non-discretionary duty 
to grant its request for a master account, all three claims must be dismissed.   
Second, all three claims must be dismissed because FRBSF is not a federal agency or branch 
of the government—an express requirement to state a claim under the APA (Count I), the Mandamus 
Act (Count II), or the Due Process clause (Count III).   
Third, PayServices’ APA claim (Count I) must also be dismissed because PayServices 
concedes that FRBSF followed the standards established by the Board and, in any event, does not 
plead any facts showing that FRBSF’s decision was arbitrary or capricious.  See Section III.   
Finally, PayServices’ Due Process claim (Count III) must also be dismissed because 
PayServices received notice and an opportunity to be heard.   
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BACKGROUND1 
A. 
The Federal Reserve System 
In 1913, Congress created the Federal Reserve System to serve as the nation’s central bank.  
See 12 U.S.C. § 221 et seq. (the “Federal Reserve Act” or the “FRA”).  Congress passed the FRA 
“to oversee banking operations and promote [] greater economic stability.”  Am. Bankers Ass’n v. 
United States, 932 F.3d 1375, 1378 (Fed. Cir. 2019).  The Federal Reserve System is composed of 
private and public entities.  Two parts are relevant here: the Board and the Reserve Banks.  The 
Board is a federal agency whose members are appointed by the President.  12 U.S.C. § 241.  
Consistent with its role as an agency, the Board exercises general rulemaking authority and acts as 
the “central supervisory authority of the Federal Reserve System.”  McKinley v. Bd. of Governors 
of the Fed. Res. Sys., 647 F.3d 331, 333 (D.C. Cir. 2011).   
By contrast, the regional Reserve Banks are federally chartered corporations which serve 
governmental interests but stand apart from the government.  See Emergency Fleet Corp. v. W. 
Union Tel. Co., 275 U.S. 415, 425-26 (1928) (“Instrumentalities like . . . the federal reserve banks, 
in which there are private interests, are not departments of the government.”).  They serve as the 
System’s operating arms, subject to the supervision of the Board.  See 12 U.S.C § 341 et seq.; see 
also Compl. ¶ 76.  In effect, Reserve Banks operate as bankers’ banks to much of the banking 
industry.  They carry out banking functions (many of which echo those that commercial banks 
provide to end-user customers), including collecting and clearing checks, making advances to 
commercial entities, and holding reserves for depository institutions.  Lewis v. United States, 680 
F.2d 1239, 1241 (9th Cir. 1982) (describing operations of the Reserve Banks). 
 
1 The well-pled factual allegations from the Complaint are accepted as true solely for purposes of this 
Motion.  Witzke v. Idaho State Bar, No. 1:22-cv-00090-REP, 2022 U.S. Dist. LEXIS 217217, at *15 
(D. Idaho Nov. 29, 2022) (Patricco, J.). 
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B. 
Master Accounts 
A master account is a deposit account that permits a depository institution to make deposits 
into and withdrawals from an account held at and administered by its regional Reserve Bank.2  The 
Reserve Bank holding the account manages the credit risk posed by the institution’s use of Federal 
Reserve services.  Id.  A Reserve Bank account holder’s deposits—as recorded in a master 
account—sit on the Federal Reserve’s balance sheet as liabilities.3  
As federally chartered corporations, the scope of services that Reserve Banks may offer are 
defined by 12 U.S.C § 341 et seq.  Relevant here, 12 U.S.C. § 342 permits Reserve Banks to open 
deposit accounts (such as master accounts) and provides that “[a]ny Federal reserve bank may 
receive from any of its member banks, or other depository institutions . . . deposits of current funds 
in lawful money. . . .”  Originally, deposit accounts with Reserve Banks were limited to the U.S. 
government and the Federal Reserve “member” banks.4  In 1980, Congress passed the Monetary 
Control Act of 1980, Pub. L. No. 96-221, to give Reserve Banks the option to offer services and 
accounts to eligible nonmember depository institutions.  See 12 U.S.C. § 342.   
C. 
The Board’s August 2022 Guidelines for Evaluating Account and 
Service Requests 
In light of the rapidly changing landscape of novel state charters and increased efforts to 
obtain direct access to the Federal Reserve Systems, the Board enacted “Guidelines for Evaluating 
Account and Services Requests” (“Guidelines”), which became effective on August 19, 2022, after 
two rounds of notice-and-comment.  87 Fed. Reg. 51,099; Compl. ¶ 78.  The Guidelines set forth 
six principles for Reserve Banks to use in evaluating access requests.  87 Fed. Reg. at 51,106-109.  
 
2 Reserve Maintenance Manual, FederalReserve.gov (Nov. 19, 2018), https://bit.ly/3QnjMUl. 
3 See Monetary Policy, Credit and Liquidity Programs and the Balance Sheet, FederalReserve.gov 
(Nov. 15, 2021), https://bit.ly/3dnokva. 
4 Member banks are subject to supervision by the Board and are required to hold stock in their 
regional Reserve Bank.  Am. Bankers Ass’n, 932 F.3d at 1379. 
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They established a three-tiered review framework “to serve as a guide to the level of due diligence 
and scrutiny to be applied by Reserve Banks to different types of institutions,” with “institutions in 
a higher tier [] on average fac[ing] greater due diligence and scrutiny.”  Id.  at 51,109.  The three 
tiers are: “Tier 1: Eligible institutions that are federally insured”; “Tier 2: Eligible institutions that 
are not federally insured but are subject (by statute) to prudential supervision by a federal banking 
agency”; and “Tier 3: Eligible institutions that are not federally insured and are not considered in 
Tier 2.”  Id. at 51,109-10.  The Guidelines state that “a Reserve Bank has the authority to grant or 
deny an access request by an institution in any of the three proposed tiers . . . on a case-by-case, 
risk-focused basis[.]”  Id. at 51,109.  
D. 
PayServices’ Master Account Request 
PayServices is an exclusively online bank, “operates no physical branches,” and does not 
carry FDIC insurance.  Compl. ¶ 46.  Its business model “focuses almost exclusively on facilitating 
trade of commodities for the small to medium enterprises from and to the United States.”  Id. ¶ 44.  
See also Exhibit A to the Declaration of Meredith Karp in Support of Defendant’s Motion to Dismiss 
(“Ex. A”).5  On August 3, 2022, PayServices—whose founder resides in Florida—received 
preliminary approval to establish a state-chartered bank in Idaho.  Compl. ¶¶ 3; 40.  On August 10, 
2022, PayServices requested a master account from FRBSF.  Id. ¶ 23.  On May 31, 2023, FRBSF 
denied PayServices’ request because it did “not meet the standards outlined in the [Guidelines].”  
Ex. A; see also Compl. ¶ 85.  In its denial letter, FRBSF found that PayServices’ “novel, monoline 
 
5 FRBSF’s decision denying PayServices’ request is incorporated by reference into the Complaint 
because it forms the basis of Plaintiff’s Complaint and because Plaintiff refers extensively to the 
letter.  See Compl. ¶¶ 36; 43; 50; 85.  United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003) (“a 
document . . . may be incorporated by reference into a complaint if the plaintiff refers extensively 
to the document or the document forms the basis of the plaintiff's claim.”).  Because the denial letter 
is incorporated by reference, the Court may treat it “as part of the complaint, and thus may assume 
that its contents are true for purposes of a motion to dismiss.”  Id.; Accord N. Mgmt. Servs. v. 
Navigators Specialty Ins. Co., 608 F. Supp. 3d 996, 999 n.2 (D. Idaho 2022). 
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business model and focus on transactions that are largely foreign in nature or involve mostly foreign 
participants presents undue risks.”  Id.  Specifically, FRBSF found that that PayServices’ “unproven 
risk management framework” was insufficient “to mitigate money laundering and terrorism 
financing risks.”  Id.  FRBSF highlighted multiple specific concerns, including “[Bank Secrecy Act, 
Anti-Money Laundering, and Office of Foreign Assets Control]6 risk management,” “the limited 
banking and bank-specific risk management experience among management,” and the possibility 
that the master account could be used to “fund or facilitate illicit activity.”  Id. 
LEGAL STANDARD 
A court may dismiss a lawsuit when the complaint fails to state a claim.  Fed. R. Civ. P. 
12(b)(6).  “To survive a motion to dismiss [under Rule 12(b)(6)], a complaint must contain sufficient 
factual matter, accepted as true, to ‘state a claim for relief that is plausible on its face.’” Ashcroft v. 
Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).  
“Conclusory allegations, unwarranted deductions of fact, and unreasonable inferences need not be 
accepted as true.”  Witzke, 2022 U.S. Dist. LEXIS 217217, at *15.   
ARGUMENT 
I. 
Each of PayServices’ Claims Must Be Dismissed Because FRBSF Had 
Discretion to Deny PayServices’ Request for a Master Account.  
PayServices asserts three claims against FRBSF:  (1) an APA claim, (2) a mandamus claim, 
and (3) a Due Process claim.  Each claim alleges that FRBSF is required to provide master accounts 
to all nonmember depository institutions, including PayServices, regardless of the risks presented.  
See, e.g., Compl. ¶¶ 81; 95; 103.  But each claim fails as a matter of law because the plain text of 
 
6 Bank Secrecy Act and Anti-Money Laundering controls serve to “detect and report suspicious 
activity,” including money laundering, terrorist financing, and securities fraud. See Anti-Money 
Laundering, FINRA, bit.ly/3qyzowg (last visited Aug. 13, 2023).  In the absence of these controls, 
the depository institution—and as a result, the Federal Reserve System—could be used to facilitate 
illicit activity causing significant financial and reputational risk.  
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Section 342 of the FRA provides FRBSF with discretion to deny master account requests.  
PayServices’ claims rest solely on Section 248a—a price discrimination provision which does not 
entitle any entity to a master account.  In any event, the purpose of the FRA as a whole and the 
Board’s interpretation of the FRA confirm that FRBSF not only has discretion to deny master 
accounts, but also has an obligation to deny accounts that pose a risk to the Federal Reserve System.  
A. 
Count I (APA Claim) Fails Because Discretionary Action Is Not Reviewable.  
PayServices brings a claim under the APA alleging that FRBSF’s denial of its application 
was “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law” because 
FRBSF purportedly “has a non-discretionary duty to make available [to PayServices] Federal 
Reserve bank services through master accounts.”  Compl. ¶¶ 81; 84.  Count I must be dismissed 
because FRBSF had discretion to deny PayServices’ request for a master account, and this Court 
lacks jurisdiction under the APA to review discretionary actions. 
Under the APA, courts can “set aside final agency7 action that is ‘arbitrary, capricious, an 
abuse of discretion, or otherwise not in accordance with law.’”  Int’l Bhd. of Teamsters v. United 
States DOT, 861 F.3d 944, 951-52 (9th Cir. 2017) (quoting 5 U.S.C. § 706(2)(a)).  However, not all 
agency actions are reviewable under the APA.  The APA expressly precludes review of “agency 
action,” which is “committed to agency discretion by law.”  5 U.S.C. § 701(a)(2).  As the Ninth 
Circuit has held, it is “well-settled that the touchstone of reviewability under [the APA] is whether 
there’s ‘law to apply.’”  Or. Nat. Res. Council v. Thomas, 92 F.3d 792, 798-99 (9th Cir. 1996) 
(holding that “where there is no law to apply for purposes of [the APA], it is legally irrelevant 
whether an agency has made a ‘finding’ that is ‘contrary to the evidence before it’ or that's ‘so 
implausible that it couldn't be ascribed to a difference in view or the product of agency expertise.’”).  
 
7 As a threshold matter, FRBSF is not an “agency” and thus not subject to the APA.  See infra 
Section II.   
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Thus, courts have no jurisdiction to review agency action under the APA when “[a] statute is drawn 
so that a court would have no meaningful standard against which to judge the agency's exercise of 
discretion.”  Int’l Bhd. of Teamsters, 861 F.3d at 954.   
Here, the review of master accounts is plainly committed to FRBSF’s discretion.  As a result, 
PayServices’ APA claim must be dismissed. 
1. 
The FRA Provides FRBSF with Discretion to Deny 
Master Accounts.   
PayServices’ APA claim fails because FRBSF has discretion to deny a master account under 
the FRA.  Master accounts are governed by Section 342, which empowers, but does not require, 
Reserve Banks to open such accounts.  Section 342 provides that a Reserve Bank “may receive from 
any of its member banks, or other depository institutions, . . . deposits . . .” 12 U.S.C. § 342 
(emphasis added).  “‘[M]ay’ does not just suggest discretion, ‘it clearly connotes it.’”  Biden v. 
Texas, 142 S. Ct. 2528, 2541 (2022) (citation omitted) (emphasis in original); Opati v. Republic of 
Sudan, 140 S. Ct. 1601, 1604 (2020) (same); Meritage Homes of Nev., Inc. v. FDIC, 753 F.3d 819, 
826 (9th Cir. 2014) (“‘may,’ when used in a statute, usually implies some degree of discretion”). 
Reserve Banks’ discretion to receive deposits includes the discretion to decline to receive 
deposits from an institution.  Indeed, the Supreme Court’s long-standing precedent establishes that 
Section 342 does not “impose[] upon reserve banks any obligation to receive” deposits; it merely 
“confers authority to do so.”  Farmers & Merchs. Bank v. Fed. Rsrv. Bank of Richmond, 262 U.S. 
649, 662 (1923) (noting that although Section 342 had been amended multiple times, “in each 
amendment . . . the words used were ‘may receive’—words of authorization merely”).  Indeed, when 
Congress amended Section 342 in the Monetary Control Act, it did not alter the permissive “may” 
language.  94 Stat. 132, 139.  Congress can therefore be presumed to have “accepted and ratified” 
the Supreme Court’s reading of “may receive” in Section 13 as discretionary in nature.  Texas Dep’t 
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of Hous. and Cmty. Affairs v. Inclusive Communities Project, 135 S. Ct. 2507, 2520 (2015); see also 
Forest Grove School Dist. v. T.A., 557 U.S. 230, 244 n.11 (2009) (“When Congress amended [the 
Act] without altering the text [of the relevant provision], it implicitly adopted [the Supreme Court’s] 
construction of the statute.”).  Thus, while Reserve Banks have the authority to accept deposits—
and therefore, to grant accounts to depository institutions—the FRA does not require them to do so. 
2. 
Section 248a Does Not Entitle PayServices to a Master Account. 
Throughout its Complaint, PayServices contends that 12 U.S.C. § 248a requires FRBSF to 
grant it a master account.  See Compl. ¶¶ 81; 103.  But Section 248a is irrelevant here.  The plain 
text of Section 248a neither entitles PayServices to a master account nor imposes any duties on 
Reserve Banks.  Instead, Section 248a instructs the Board (not FRBSF) to guarantee that the Federal 
Reserve System does not price discriminate between member and nonmember banks.  Nothing in 
this price discrimination provision prevents Reserve Banks from denying an institution’s request for 
a master account.8 
First, Section 248a does not require FRBSF to grant every master account request.  Section 
248a, titled “Pricing of services,” provides that “the Board shall publish for public comment a set of 
pricing principles . . . for Federal Reserve bank services to depository institutions” and instructs the 
Board “to put into effect a schedule of fees for such services which is based on those principles.”  12 
U.S.C. § 248a(a).  Once the Board has established a fee schedule, “[a]ll Federal Reserve bank services 
 
8 FRBSF is aware that the District Court for the District of Wyoming recently denied a motion to 
dismiss a complaint alleging the improper denial of a master account.  See Custodia v. Federal 
Reserve Bd. Of Govs., No. 1:22-cv-00125, Doc. 164 (D. Wy. June 8, 2023).  However, Custodia did 
not hold that Section 248a applied to Reserve Banks as a matter of law.   Instead, the decision was 
“based mostly” on one opinion in a three-way split decision of the Tenth Circuit,  id. at 10-12 (citing 
Fourth Corner Credit Union v. Fed. Rsrv. Bank of Kansas City, 861 F.3d 1052, 1053-54 (10th Cir. 
2017)), which the Custodia court found “may plausibly be the law on this matter in this case” at the 
motion to dismiss stage.  Id. at 10.  The Court expressly deferred on questions of statutory 
interpretation.  Id. 
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covered by the fee schedule shall be priced explicitly,” id. § 248a(c)(1) and “[a]ll Federal Reserve 
bank services covered by the fee schedule shall be available to nonmember depository institutions 
and such services shall be priced at the same fee schedule applicable to member banks.” Id. § 
248a(c)(2).  In effect, Section 248a is an anti-price discrimination provision.  It provides that a 
nonmember bank which has access to the Federal Reserve System will pay the same for those services 
as a member bank.  But Section 248a says nothing about whether a depository institution is entitled 
to a master account in the first instance, nor does it entitle any institution to a master account. 
Second, Section 248a does not impose any duty on Reserve Banks at all.  This provision—
contained in subchapter of the FRA titled “Board of Governors of the Federal System”—applies only 
to the Board.  Compare 12 U.S.C. §§ 241-52 with 12 U.S.C. §§ 341-64 (subchapter titled “Powers 
and Duties of Federal Reserve Banks”).  See Bobka v. Toyota Motor Credit Corp., 968 F.3d 946, 954 
(9th Cir. 2020) (“[T]he title of a statute or section can aid in resolving an ambiguity in the legislation’s 
text.”).  It directs the Board, not the Reserve Banks, to take certain actions.  See § 248a(a) (“the Board 
shall publish for public comment a set of pricing principles”); id. § 248a(d) (“The Board shall require 
reductions in the operating budgets of the Federal Reserve banks”).  It would be anomalous for 
Congress to hide a requirement that Reserve Banks must grant direct master accounts to all depository 
institutions, irrespective of risk presented, in a provision that is not even addressed to the Reserve 
Banks.  See Whitman v. Am. Trucking Ass’ns, 531 U.S. 457, 468 (2001) (courts should interpret 
statutes with a recognition that Congress does not “hide elephants in mouseholes”). 
In all, Section 248a—the only statutory provision on which PayServices relies—is 
inapplicable on its face.  As a result, PayServices’ APA claim must be dismissed. 
3. 
The Statutory Scheme Entrusts FRBSF with Discretion. 
PayServices’ position—that every eligible depository institution holding any state charter is 
automatically entitled to a master account, regardless of its risk profile (Compl. ¶¶ 60-64; 95-96)—
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puts each individual state or territory in control of direct access to the national payment system 
without room for Reserve Bank review.  But stripping Reserve Banks of their power (and duty) to 
manage risk is inconsistent with the very purpose of the FRA.   
Construing Section 248a as granting an unconditional right of access to Reserve Bank master 
accounts would undermine the purpose of the FRA, in derogation of basic principles of statutory 
construction.  See King v. Burwell, 576 U.S. 473, 492 (2015) (statutes should be construed in light 
of the “remainder of the statutory scheme [to favor readings with] a substantive effect that is 
compatible with the rest of the law.”).  First, Congress charged the Federal Reserve System with 
oversight of the nation’s payment system “in furtherance of the national fiscal policy.”  See Fed. 
Rsrv. Bank of Boston v. Comm’r of Corps. & Tax’n, 499 F.2d 60, 62 (1st Cir. 1974).  Permitting 
every single state and territory to dictate which entities can directly access the Federal Reserve 
System—with no room for federal oversight—would remove a vital tool for the Reserve Banks to 
guard against money laundering, contain cybersecurity breaches, or address a myriad of other risks.  
Second, the purpose of the Monetary Control Act, in which Section 248a was first enacted, is to 
“facilitate the implementation of monetary policy,” 94 Stat. 132.  PayServices’ construction of 
Section 248a would undermine the Federal Reserve System’s ability to carry out its statutory 
mandate to regulate the money supply to promote maximum stability.  In all, nothing in the text or 
history of the FRA suggests that Congress intended to substitute the judgment of an individual state 
for that of the Federal Reserve System to maintain the “stability of financial systems and markets.”  
Bloomberg L.P. v. Bd. of Governors of the Fed. Res. Sys., 649 F. Supp. 2d 262, 265 (S.D.N.Y. 2009).   
Further, Congress recently confirmed that Reserve Banks can deny requests for master 
accounts.  In December 2022, Congress amended the FRA to require the Board to “create and 
maintain a public, online, and searchable database” that includes “a list of every entity that submits 
an access request for a reserve bank master account and services . . . including whether . . . a request 
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was approved, rejected, pending, or withdrawn.”  12 U.S.C. § 248c(b)(1) (emphasis added).  The 
statute indicates that each entry on the list must specify whether the requesting entity was “an insured 
depository institution,” “an insured credit union,” or a “depository institution that is not an insured 
depository institution.”  Id. § 248c(b)(1)(C).  Thus, by its plain terms, Congress specifically 
contemplated that requests for master accounts from uninsured depository institutions (such as 
PayServices here) may be “rejected.”  It strains credulity to assume that Congress mandated the 
Federal Reserve System to track all rejected applications for master accounts if the Reserve Banks 
had no discretion to reject master accounts in the first place.     
4. 
The Board Confirms that FRBSF Has Discretion.  
The Board—the agency in charge of overseeing the Federal Reserve System—promulgated 
guidelines confirming that Reserve Banks have discretion to deny master accounts.  It is beyond 
dispute that an agency usually receives “deference in its construction of an ambiguous statute that 
it administers.”  Int’l Bhd. of Teamsters, Local 2785 v. Fed. Motor Carrier Safety Admin., 986 F.3d 
841, 849 (9th Cir. 2021); Ocean, Inc. v. Pritzker, 24 F. Supp. 3d 49, 70 (D.D.C. 2014) (holding that 
agency guidance published through a “formal process” deserves “considerable deference”).  Here, 
the Guidelines repeatedly recognize that “decisions regarding individual access requests remain at 
the discretion of the individual Reserve Banks.”  87 Fed. Reg. 51,106; id. at 51,100 (noting the 
“discretion granted to the Reserve Banks under the Federal Reserve Act to grant or deny access 
Requests”).  This Court should defer to the Board’s reasonable interpretation of the FRA.  
In fact, not only do the Guidelines permit FRBSF to exercise discretion, they require the 
Reserve Banks to ensure that the institution requesting an account does not present undue risk to the 
Federal Reserve System.  The Guidelines “apply to requests from all institutions that are legally 
eligible to receive an account.”  87 Fed. Reg. 51,106 (emphasis added).  And on at least 12 separate 
occasions, the Guidelines state that Reserve Banks “should confirm” or “should consider” various 
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factors in evaluating requests for Master Accounts, which underscores the Reserve Banks’ use of 
discretion when making decisions.  Id. at 51,107-10.   
* 
* 
* 
In all, Section 342—the only relevant provision of the FRA—clearly provides FRBSF with 
discretion to deny master accounts, and Section 248a, the sole statutory provision on which 
PayServices relies to establish FRBSF’s “non-discretionary” duty is inapplicable on its face. 
Moreover, the purpose of the FRA, Congress’s recent amendment to the FRA, and the Board’s 
interpretation of the FRA each independently confirm that FRBSF has discretion to deny master 
account requests.  And because this Court has no jurisdiction under the APA to review actions 
committed to FRBSF’s discretion, PayServices’ APA claim fails as a matter of law.    
B. 
Count II (Mandamus Claim) Fails Because Mandamus Cannot Be Used 
to Compel Discretionary Action. 
PayServices brings a claim for relief under the Mandamus Act, requesting this Court to direct 
FRBSF to “rescind denial of PayServices’ master account application and instead grant the 
application.”  Compl. ¶ 92.  PayServices is not entitled to the “extraordinary remedy” of a writ of 
mandamus, Barron v. Reich, 13 F.3d 1370, 1374 (9th Cir. 1994), because a writ of mandamus cannot 
be granted to compel discretionary action. 
“[M]andamus is traditionally proper only to command an official to perform an act which is 
a positive command and so plainly prescribed as to be free from doubt.”  Shoshone Bannock Tribes 
of the Fort Hall Rsrv. v. United States, 575 F. Supp. 3d 1245, 1260 (D. Idaho 2021) (quoting Smith 
v. Grimm, 534 F.2d 1346, 1352 (9th Cir. 1976)).  Critically, “mandamus may not be used to impinge 
upon an official’s legitimate use of discretion.”  Barron, 13 F.3d at 1376.  Here, PayServices seeks 
to do just that.  The Complaint contends that “[m]andamus is appropriate here because PayServices 
has a clear and certain claim to have its master account application granted.”  Compl. ¶ 95.  
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PayServices contends that its “valid Idaho bank charter” entitles it to a master account.  Id. ¶ 95-96.  
But the FRA puts the Board and Reserve Banks—not individual states or territories—in charge of 
monitoring the Federal Reserve System.  See supra Section I.A.4.  The only other provision 
PayServices cites to support its “clear and certain” claim is Section 248a.  Compl. ¶ 95.  But Section 
248a is inapplicable, and instead, Section 342 grants FRBSF discretion to deny such accounts.  See 
Section I.A.1-4.  Because mandamus is improper where, as here, a defendant is afforded statutory 
discretion, Count II must be dismissed. 
C. 
Count III (Due Process Claim) Fails Because PayServices Has No 
Protected Property Interest in a Discretionary Benefit.   
 
PayServices brings a Due Process claim, alleging that “FRBSF has deprived PayServices of 
a protectible property interest – namely, access to a Federal Reserve master account.”  Compl. ¶ 101.  
Count III fails because PayServices has no protected property interest in a master account that 
FRBSF has discretion to deny. 
To state a procedural Due Process claim, a plaintiff must allege the deprivation of a protected 
property interest.  Pinnacle Armor, Inc. v. United States, 648 F.3d 708, 716 (9th Cir. 2011).  As this 
Court has held, “if government officials have the discretion to grant or deny a benefit, that benefit 
is not a protected property interest.”  MH v. Jeppesen, No. 1:22-cv-00409-REP, 2023 U.S. Dist. 
LEXIS 108023, at *43 (D. Idaho June 20, 2023) (Patricco, J.); see also Doyle v. City of Medford, 
606 F.3d 667, 672 (9th Cir. 2010) (“A regulation granting broad discretion to a decision-maker does 
not create a property interest.”).  For this reason, the Ninth Circuit has dismissed Due Process claims 
against federally chartered banks (like FRBSF) where the relevant statute does “not impose 
particularized standards or criteria that significantly constrain the Bank’s discretion to deny” the 
benefit.   Fid. Fin. Corp. v. Fed. Home Loan Bank, 792 F.2d 1432, 1436 (9th Cir. 1986).  
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The only “property” interest PayServices identifies is “access to a Federal Reserve master 
account.”  Compl. ¶ 101.  Here, again, PayServices’ only support for this proposition is that “Section 
248a requires the issuance of master accounts.”  Id.  ¶ 103.  For the same reasons stated above, that 
is not true: FRBSF has discretion to deny master accounts.  See supra Section I.A.1-4.  And because 
FRBSF has discretion, PayServices has no protected property interest in a master account, and 
PayServices’ Due Process claim must be dismissed.9    
II. 
Each of PayServices’ Claims Fails Because FRBSF Is Not the Federal Government. 
Each of PayServices’ claims fails for the independent reason that FRBSF is not a federal 
agency or branch of the government, as required to state each of its claims.  
First, the Reserve Banks are not “agencies” under the APA and, as such, this Court lacks 
subject matter jurisdiction over Count I.   Walkwell Int'l Labs., Inc. v. Nordian Admin. Servs., LLC, 
No. 1:13-cv-0199-EJL, 2014 U.S. Dist. LEXIS 5282, at *17-18 (D. Idaho Jan. 13, 2014) (dismissing 
APA claim against federal contractor for lack of jurisdiction). The APA defines “agency” as an 
“authority of the Government of the United States.” 5 U.S.C. § 701(b)(1).  Courts have cautioned 
that “[t]he wording of section 701(b)(1) indicates that we should not give the definition of ‘agency’ 
a more expansive reading” than what is present in the text.  New York v. Atl. States Marine Fisheries 
Comm’n, 609 F.3d 524,532 (2d Cir. 2010).  To qualify as an agency, an entity must “exercise 
substantial independent authority” or be the “center of gravity in the exercise of administrative 
power.”  Dong v. Smithsonian Inst., 125 F.3d 877, 881-82 (D.C. Cir. 1997).   
 
9 PayServices makes passing reference to “Exim Bank,” Compl. ¶¶ 50-51, and “a dozen banks 
chartered under the Idaho Bank Act.”  Id. ¶ 72.  Although PayServices does not allege that FRBSF 
provided a master account to Exim Bank, PayServices alleges that FRBSF provided master accounts 
to the other Idaho chartered banks.  To the extent PayServices contends that FRBSF’s decision to 
grant these institutions a master account creates a “property interest,” PayServices is mistaken.  “A 
constitutional entitlement cannot be created . . . merely because a wholly and expressly discretionary 
state privilege has been granted generously in the past.”  Burch v. Smathers, 990 F. Supp. 2d 1063, 
1072 (D. Idaho 2014) (quoting Conn. Bd. of Pardons v. Dumschat, 452 U.S. 458, 465 (1981). 
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Here, PayServices alleges that the FRBSF operates under the “ultimate control of the Federal 
Reserve Board of Governors, an independent federal regulatory agency.”  Compl. ¶ 76.  Still, 
PayServices alleges that FRBSF is an agency because the “Board has delegated substantial decision 
making authority to the Federal Reserve banks” and by virtue of that delegated authority, “FRBSF 
possesses substantial independent authority in the exercise of specific functions and has authority 
in law to make decisions.”  Id. ¶ 80.  But the only “decision-making” authority alleged in the 
Complaint is the ability to process a master account review (id. ¶ 81)—which PayServices alleges 
is a “non-discretionary” duty, not a decision-making function.   
In any event, FRBSF’s ability to decide whether to grant an eligible financial institution a 
master account does not make FRBSF the “center of gravity in the exercise of administrative power” 
under the APA.10  Dong, 125 F.3d at 881-82 (holding that defendant's decision-making authority 
did not render it a government agency); Nordian, 2014 U.S. Dist. LEXIS 5282, at *17-18 (same).   
Indeed, Reserve Banks have none of the traditional hallmarks of a federal agency: they 
cannot “promulgate regulations having the force and effect of law,”  Scott v. FRB of Kan. City, 406 
F.3d 532, 536 (8th Cir. 2005); 12 U.S.C. § 248(k) (prohibiting the Board from delegating 
“rulemaking” to the Reserve Banks); they “receive no appropriated funds from Congress,” Lewis, 
680 F.2d at 1242; and the government appoints only a minority of their directors, 12 U.S.C. §§  302; 
304.  In fact, “Congress has considered the status of the [Reserve Banks] on multiple occasions and 
decided not to convert them formally into government agencies.”  United States ex rel. Kraus v. 
Wells Fargo & Co., 943 F.3d 588, 598 (2d Cir. 2019) (holding that Reserve Banks are not agencies 
under the False Claims Act).  Because FRBSF is not a federal agency, Count I must be dismissed. 
 
10 The Ninth Circuit has held that Reserve Banks are not federal agencies under the Federal Torts 
Claims Act.  Lewis, 680 F.2d at 1241.  And the Federal Torts Claims Act defines agency more 
broadly than the APA.  See Dong, 125 F.3d at 878-80.   
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Second, PayServices is similarly not entitled to a writ of mandamus.  The Mandamus Act, 
28 U.S.C. § 1361, grants district courts the authority to issue a writ of mandamus compelling an 
“officer” or “employee” of the United States or “any agency thereof to perform a duty owed to the 
plaintiff.”  PayServices alleges that mandamus is proper because “FRBSF’s president is ‘an officer 
. . . of the United States.”  Compl. ¶ 94.   But the “federal reserve banks . . . are not departments of 
the government,”  Emergency Fleet Corp., 275 U.S. at 426, and as discussed above, they are not 
federal agencies.  See also Scott, 406 F.3d at 537 (“no statute designates Federal Reserve Banks as 
federal agencies”).  As a result, Count II must be dismissed.  
Third, PayServices’ Due Process claim must similarly be dismissed because the Due 
Process clause applies “only to the federal government.”  Am. Bankers Mortg. Corp. v. Fed. Home 
Loan Mortg. Corp., 75 F.3d 1401, 1406 (9th Cir. 1996).  Whether a federally chartered corporation 
is the “federal government” for purposes of the Due Process clause depends on two factors: (1) “the 
extent to which its objectives are governmental,” and (2) “the extent to which the government directs 
and controls the corporation’s pursuit of those objectives.”  Id.  The control prong is not satisfied 
where, as here, the government does “not control[] the operation of [the federal corporation] through 
its appointees.”  Id. at 1407 (citing Lebron v. Nat’l R.R. Passenger Corp., 513 U.S. 374 (1995)). 
The Ninth Circuit’s decision in American Bankers is instructive here.  The Ninth Circuit 
held that the Federal Home Loan Mortgage Corporation—which, like FRBSF, is a federally 
chartered corporation subject to supervision by a federal agency—was not the federal government 
for purposes of the Due Process clause because the U.S. government appointed a minority of its 
board of directors.  Id.  Here, too, the government only appoints one-third of the FRBSF Board of 
Directors.  12 U.S.C. §§  302; 304.  As a result, FRBSF is not the federal government, and 
PayServices’ Due Process claim must be dismissed.  See Hall v. Am. Nat’l Red Cross,86 F.3d 919, 
922 (9th Cir. 1996) (holding that the Red Cross, although a federal instrumentality for some 
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purposes, was not a “government actor” because “the government has not retained permanent 
authority to appoint the majority of the Red Cross governing board”). 
III. 
Count I (APA Claim) Must Also Be Dismissed Because FRBSF’s Decision Was Not 
Arbitrary or Capricious. 
PayServices’ APA claim also fails because PayServices has not pled facts showing that 
FRBSF’s decision was arbitrary or capricious.  Compl. ¶ 84.  Under the APA, a court can set aside 
agency action that is arbitrary or capricious.  Review under “the arbitrary and capricious standard is 
narrow, and the reviewing court may not substitute its judgment for that of the agency.”  United 
States v. Snoring Relief Labs., Inc., 210 F.3d 1081, 1085 (9th Cir. 2000) (citations omitted).  “A 
decision is arbitrary and capricious if the agency has relied on factors which Congress has not 
intended it to consider, entirely failed to consider an important aspect of the problem, offered an 
explanation for its decision that runs counter to the evidence before the agency, or is so implausible 
that it could not be ascribed to a difference in view or product of agency expertise.”  O’Keeffe’s, 
Inc. v. U.S. Consumer Prod. Safety Comm’n, 92 F.3d 940, 942 (9th Cir. 1996) (citations omitted).  
PayServices here fails to meet this exacting standard.  As a threshold matter, PayServices expressly 
pleads that FRBSF based its denial of PayServices’ application on the Guidelines.  Compl. ¶ 85.  A 
“plaintiff has no right to sue for a violation of the APA in the absence of a relevant statute whose 
violation forms the legal basis for the complaint.”  Nordian, 2014 U.S. Dist. LEXIS 5282, at *18.  
And here, PayServices has not alleged that FRBSF violated any relevant standard, except for Section 
248a which, as stated above, does not apply here.  As a result, its APA claim must be dismissed. 
In any event, PayServices does not plead facts showing that FRBSF’s decision was 
inconsistent with the Guidelines—the only possibly relevant standard by which to judge FRBSF’s 
discretion.  First, PayServices does not allege that FRBSF improperly categorized it as a Tier 3 
entity.  Nor could it: a Tier 3 entity is any entity that is not federally insured and is not subject to 
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prudential supervision by a federal regulator.  87 Fed. Reg. 51,109-110.  PayServices does not allege 
that it is subject to federal supervision and concedes it is not insured.  Compl. ¶¶ 17-18.    
Second, PayServices appears to allege that FRBSF made the wrong decision because 
PayServices’ business model posed no risk to the Federal Reserve System, see id. ¶¶ 27-31, 34-39, and 
because its current business plan projections make up only a fraction of the total Federal Reserve 
balance sheet, see id. ¶ 58.  But a Court cannot overturn FRBSF’s decision under the APA merely 
because PayServices disagrees with the result.  To the contrary, this Court “must uphold agency 
decisions so long as the agencies have ‘considered the relevant factors and articulated a rational 
connection between the factors found and the choices made.’”  City of Sausalito v. O'Neill, 386 F.3d 
1186, 1206 (9th Cir. 2004) (emphasis added).   
Here, FRBSF’s denial letter applies the factors laid out in the Guidelines.  Ex. A.  For example, 
the Guidelines instruct FRBSF to assess whether an institution “present[s] or create[s] undue credit, 
operational, settlement, cyber, or other risks to the” Reserve Banks, or whether an institution may 
“facilitate . . . illicit activity.”  87 Fed. Reg. at 51,107.  To guide this assessment, the Reserve Banks 
were instructed to “confirm that the institution has an effective risk management framework.”  Id.  
Consistent with that guidance, FRBSF denied PayServices’ application11 because PayServices’ 
“unproven risk management framework” was insufficient “to mitigate money laundering and terrorism 
financing risks.”  Ex. A.  FRBSF specifically cited inadequate controls in “[Bank Secrecy Act, Anti-
Money Laundering, and Office of Foreign Assets Control] risk management,” “cyber and information 
security risk management,” and “enterprise risk management,” along with “the limited banking and 
bank-specific risk management experience among management[.]”  Id.   
 
11 Plaintiff also alleges that FRBSF “never presented any specific barriers to approval prior to the 
issuance of a denial.”  Compl. ¶ 83.  But the APA does not require FRBSF to provide explanations 
“prior” to issuing a denial. 
Case 1:23-cv-00305-REP   Document 22-1   Filed 08/14/23   Page 25 of 28

 
DEFENDANT FEDERAL RESERVE BANK OF SAN FRANCISCO’S MEMORANDUM OF LAW IN SUPPORT OF 
ITS MOTION TO DISMISS PLAINTIFF’S COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF - 20 
In sum, Plaintiff’s APA claim also fails as a matter of law because it cannot show that 
FRBSF’s decision to deny PayServices’ master account request was arbitrary or capricious. 
IV. 
Count III (Due Process) Must Be Dismissed for the Independent Reason that 
PayServices Has Not Alleged that It Was Denied Procedural Protections. 
PayServices’ procedural Due Process claim also fails because PayServices received all the 
procedural protections required by law.12  A procedural Due Process claim requires “(1) a 
protect[ed] liberty or property interest . . . and (2) a denial of adequate procedural protections.”  
Pinnacle Armor, Inc. v. United States, 648 F.3d 708, 716 (9th Cir. 2011) (citations omitted).   
Even if a master account was a protected property interest (which, for the reasons discussed 
above, it is not), “[a]ll that is required before a deprivation of a protected interest is ‘notice and 
opportunity for hearing appropriate to the nature of the case.’”  Pinnacle, 648 F.3d at 717.  Here, 
PayServices expressly pleads that it received two opportunities to meet with FRBSF.  Compl. ¶¶ 16; 
23.  It admits that it was permitted to submit written evidence.  Id. ¶¶ 24; 25.  And it admits that it 
received a written decision explaining the basis for FRBSF’s decision.  Id.  ¶ 43.  On this record, 
PayServices has not been denied any procedural protections, and its Due Process claim must be 
dismissed.  Pinnacle, 648 F.3d at 717 (dismissing Due Process claim when plaintiff “had ample 
opportunities to submit evidence both before and after the Notice was revoked” and the state actor 
“explained its decision . . . even if no formal administrative hearings took place”). 
CONCLUSION 
For the foregoing reasons, Defendant FRBSF respectfully requests this Court to dismiss 
PayServices’ Complaint with prejudice. 
 
12 Plaintiff in passing references a substantive Due Process claim.  See Compl. ¶ 100. “Substantive 
due process protects an individual’s fundamental rights.”  C.R. v. Eugene Sch. Dist., 835 F.3d 1142, 
1154 (9th Cir. 2016).  But PayServices does not have a fundamental right to directly access the 
Federal Reserve System, and, in any event, PayServices concedes that it still can access the Federal 
Reserve System through an intermediary bank.  Compl. ¶¶ 1; 98. 
Case 1:23-cv-00305-REP   Document 22-1   Filed 08/14/23   Page 26 of 28

 
DEFENDANT FEDERAL RESERVE BANK OF SAN FRANCISCO’S MEMORANDUM OF LAW IN SUPPORT OF 
ITS MOTION TO DISMISS PLAINTIFF’S COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF - 21 
Dated this 14th day of August, 2023. 
Respectfully submitted, 
 
HOLLAND & HART LLP 
By:  /s/ Robert A. Faucher 
Robert A. Faucher 
  
- and - 
SIMPSON THACHER & BARTLETT LLP  
 
By:  /s/ Jonathan K. Youngwood       
Jonathan K. Youngwood (Admitted Pro Hac Vice) 
Meredith Karp (Admitted Pro Hac Vice)  
 
Attorneys for Defendant  
 
Case 1:23-cv-00305-REP   Document 22-1   Filed 08/14/23   Page 27 of 28

 
DEFENDANT FEDERAL RESERVE BANK OF SAN FRANCISCO’S MEMORANDUM OF LAW IN SUPPORT OF 
ITS MOTION TO DISMISS PLAINTIFF’S COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF - 22 
CERTIFICATE OF SERVICE 
I HEREBY CERTIFY that on the 14th day of August, 2023, I filed the foregoing 
electronically through the CM/ECF system, which caused the following parties or counsel to be 
served by electronic means, as more fully reflected on the Notice of Electronic Filing: 
Asa Daniel Brown  
asa@asabrownlaw.com  
 
Jade A. Craig  
jade@jadeacraigpa.com  
 /s/ Robert A. Faucher 
Robert A. Faucher 
of HOLLAND & HART LLP 
 
Case 1:23-cv-00305-REP   Document 22-1   Filed 08/14/23   Page 28 of 28

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